It was one of the greatest turning points in business history. And it all started over a cup of coffee…
In 2001, Amazon was still a promising online retailer – selling books online.
And founder/CEO Jeff Bezos was eager to fill his website inventory.
So he invited Costco Wholesale co-founder/CEO Jim Sinegal to Starbucks, which was in a Barnes and Noble bookstore (how about that for the irony!)
Jim Sinegal co-founder of Costco Wholesale
Bezos wanted to use Costco as a wholesale supplier. There were still many companies that did not sell directly to Amazon.
The idea was going nowhere.
But Sinegal kept talking and Bezos kept listening.
Bezos soon realized he was getting a masterclass from one of the greatest retailers of all time…that was about to change everything.
Sinegal shared the Costco model with Bezos, and the rest is history…
Singeal told Bezos it was two words… consumer loyalty.
To shop at Costco, you must be a member. The reason people pay to become members is because of the overwhelming value they get.
A membership is currently $55 per year, which I have happily paid for since becoming a member in 2011.
Me at Costco shopping for my summer wardrobe (I’m NOT size 40×30 pants)!
Sinegal called the annual fee a “one-time pain”.
Every time a customer walks into a Costco and sees a huge flat screen TV that sells for less than anywhere else…the concept of value is reinforced.
Costco’s approach is simple: value trumps everything.
Bezos absorbed what Sinegal had told him and was eager to apply it to his business.
Starting next week, Bezos changed Amazon’s pricing strategy.
Amazon preached low prices, but in some cases they weren’t that low.
The prices of some of their competitors were lower.
Soon after, Amazon lowered the prices of books, music, and videos by 20-30%.
And a few years later, in 2005, Amazon launched its own new membership program called “Prime”.
The price was $79 per year, and the main benefit was free shipping on your Amazon orders.
Over the years, Amazon has increased Prime membership to $139, and the value proposition has grown stronger.
Today, Prime members get benefits including free shipping options and streaming, shopping, and playing benefits.
They can also share Prime membership with other family members. That’s what I do.
And when I asked my team if they used it? Every one of them did. Do you have an Amazon Prime or Costco membership, or are you like me with both? Let me know here.
Amazon shareholders should send a BIG thank you note to Sinegal.
Look at what happened to Amazon stock after this coffee decision:
Amazon is up 25,000% since April 1, 2001
That meeting over coffee more than two decades ago laid the foundation for a membership service with more than 200 million active subscribers.
It contributed to subscription services net sales and earned Amazon $35 billion in 2022 alone.
That’s all it takes!
I call it the “billion dollar move”.
You saw for yourself with Amazon.
Investing – or associating with great CEOs – presents very real opportunities for life-changing gains.
And the next company to hit the billion dollar mark? Well, I’m sure I found it.
I even spoke to the CEO myself. Our conversation overwhelmed me.
Not only did he invest $20 million of his own money in his business…
He made a bold move that allows his business to generate up to 5 times more money from his energy than others can make from theirs.
And the kicker?
It trades for less than $5 per share. Talk about a bargain!
Founder, Alpha Investor
Buried in the news cycle this week was the new home sales report for May.
The numbers came in exceptionally strong, reaching their highest levels since the Federal Reserve began its tightening cycle last year.
The good news
New home sales jumped 12.2% to a seasonally adjusted annual rate of 763,000. The consensus among economists was 683,000.
So not only are sales improving, they are improving faster than anyone seems to expect!
As usual, the devil is in the details.
Mortgage rates are still extremely high, reducing the pool of affordable homes. This is the main reason why new home sales (as well as existing home sales) fell last year.
Well, new home prices have had to adjust to this reality. The median price for new homes in May was $416,300, down 7.6% from a year ago.
All of this is good news. Demand for homes is always strong and the lower the prices, the more affordable new homes become.
Spending on homes also prompts spending on other big-ticket items like furniture and appliances. So the more activity we see in the housing market, the better the news for the economy in general.
The bad news
Alas, now is the time.
The Fed is watching this unfold. And a strong and robust housing market gives them much more leeway to continue draining liquidity from the system.
Of course, they “paused” their rate hikes in June. But President Powell has made it clear that more hikes are coming.
Strong data like this gives the Fed the leeway to do so without worrying about blowing up the economy.
But here’s the thing. The more they raise rates to fight inflation, the more likely they are to do just that… blow up the economy.
Or more accurately, push us into recession.
In a way, the stocks I’m willing to hold during a recession show my level of comfort with the underlying business.
Strong, well-managed companies survive recessions very well. In fact, they often use a tough economy to snatch market share from their weaker competitors.
This brings us back to Charles Mizrahi’s focus on world-class rock star CEOs. You can be much more comfortable owning a stock in an uncertain economy when you’re partnered with the best.
And this CEO “Billion Dollar Move” as Charles explains in his latest research, can provide you with an incredible recession proof investment.
Charles SizemoreChief Editor, The edge of the banyan